Whether where assessee invested sale proceeds of tenancy rights in specified bonds, he was entitled to deduction under section 54EC even though his wife and daughters were co-holders of said bonds?
Primary requirement for claiming deduction u/s. 54EC of the Act was fulfilled in the instant case by virtue of the fact that the funds invested emanated from the sum received out of the transfer of long term capital asset and that it was invested within a specified time. In his opinion payment of the maturity proceeds to any one of the bond holders is not a material factor for deciding the ownership of the bonds. At this stage we may notice that in the statement of facts before learned CIT(A) the assessee stated that though rules were framed for ease of operation and not for determining ownership and/or succession rights, the fact remains that the assessee’s wife had instructed REC to remit the maturity proceeds directly to the account of the assessee and REC had agreed to the change readily without asking for any documentation for the reason that they are not concerned with the question as to who among the joint applicants are the true owners of the bonds. It was stated that the REC had confirmed the change vide their letter dated 27.7.2009. Having regard to the factual matrix, learned CIT(A) observed that the payment of the maturity deposit to any one of the bond holders is not a material factor so long as investment was made out of the sale proceeds and assessee’s name also figures as one of the investors, more particularly when REC changed the name of recipient in it’s records.
Exemption Under Section 54F if Assessee claims two units as one he has to furnish Approved Municipal Plan.
It is well-settled that in order to claim any deduction against taxable income, initial onus is cast upon the assessee to prove that he has complied with the conditions laid down therein. Under section 54F, a deduction is permissible against the consideration received on surrender of tenancy rights provided assessee has purchased a residential house within a period of two years. In the instant case, the documents produced by the assessee smacks of bona fide deal. The assessee has worked for L&T for a considerable length of period and was aware of his tenancy rights and the implications therein and hence, it cannot be said that he is not aware of what should be the precaution to be taken while entering into a sale agreement. No bona fide purchase will enter into a sale agreement which does not contain any details with regard to the plan of the property. In the instant case, sale deed for 394 sq. feet area simply mentions that the assessee is entitled to 394 sq. feet without mentioning as to whether it consists of one room, kitchen, balcony etc., or of any other dimension. Similarly, the second agreement also merely mentions about 554 sq. feet and both the sale deeds do not contain the specifications of carpet area of the flats. Even the assessee could not furnish any municipal plan or brochure to suggest that he has entered into a bona fide purchase transactions under two separate sale deeds with an intention to convert them for use as one residential house.
The assessee could not furnish the municipal approved plan. It may be noticed that some plan is annexed to the sale deeds but the assessee, has not referred to that. At any rate, it consists of wing-A and wing-B and it is not known as to how the Municipal Corporation has given its approval if the construction itself is of one flat each in the place of two flats shown in two wings in the approved plan. A person claiming a deduction should come with clean hands. In the instant case, the facts appear to be different. It is not the case of the assessee that at least some of the flats, other than his flat, consists of A-wing and B-wing and such independent small flats were separately purchased at least by some persons.
On the contrary, the Income-tax Inspector’s report indicates that two separate blocks do not exist. A sale agreement is a prima facie/valid evidence to prove that there are two separate flats. But at the same time assessee was not able to pinpoint as to whether those flats were existing. The flat in which he is staying might be registered in somebody’s else name since there is no legal evidence (sale deed) available on record to suggest that flat No. 102-A, consisting of 948 sq. feet with 3 bed rooms etc., is purchased by assessee. It is also not known as to whether Municipal Authorities have given completion certificate in respect of flat 102-A consisting of 948 sq. feet. Thus, legally assessee did not establish that he has purchased the flat. No doubt sale deeds in respect of Flat No. 102-A and 102-B were produced but it is not established that such construction was legally permitted by the Municipal Authorities i.e., by joining the two flats. Despite lack of evidence, Assessing Officer was reasonable in allowing deduction under section 54F the extent of Rs. 31,64,120.
On a conspectus of the matter, deduction under section 54F of the Act is permissible only upon furnishing admissible evidence to show that the assessee has purchased a residential house within a period of two years. In the interest of justice, the Assessing Officer was directed to give the assessee one more opportunity to prove that the sale deeds with reference to which assessee claims to have purchased the property was the same which was occupied by the assessee and it is legally permitted to be constructed by the Municipal Authorities. It may not be out of place to mention that if the construction is illegal and the same is not compounded or regularized by the Municipal Authorities, it may not, in strict legal sense, be treated as a purchase of a residential house. However, the assessee is at liberty to show that he is legally entitled to claim deduction under section 54F. With these observations claim of deduction under section 54F is set aside to the file of the Assessing Officer.
Source- Assistant Commissioner of Income-tax v. Vijay S. Shirodkar (ITAT Mumbai) – IT APPEAL NO. 4141 (MUM.) OF 2010, Dated- AUGUST 30, 2011